Occam's Razor

Job growth in March was a measly 88,000 jobs. The unemployment rate dropped to 7.6 percent, but this was largely because many people stopped looking for work. The economy had been looking pretty promising earlier in the year, with steady job growth well in excess of 100,000 jobs a month.

Now we will likely be watching the effects of austerity for the rest of this year and probably next year as well. It won’t seem familiar to many of us who were not impacted by the Great Recession, but it will look familiar to those who live in Europe. Austerity has failed to rectify Europe’s economy although it has caused two recessions. Austerity in Great Britain looks like it is causing a third recession. Yet for some reason in the United States we seem to want to emulate European austerity. The predictable results are starting to be seen in the jobs numbers for March.

To the extent the United States has had job growth over the last few years, it has been due to not following austerity. And this should not be rocket science. What exactly is austerity? It is not living at your means; it is living below your means. The hope is that through frugality one will glean efficiency, competitiveness and an eventual rebound in wealth. Austerity does not mean driving a used car, it means driving a very used car until it falls apart on the side of the road. And after it falls apart, maybe it means not replacing it.

Austerity is being enacted through sequestration, which cuts certain areas of federal spending. It will lead to the furlough of federal workers like me, actual cuts in pay that will give me less to live on and will decrease my standard of living. Some federal workers may have their pay cut as much as twenty percent through the end of the fiscal year. In some sense though federal workers are relatively lucky. At least they will have some income. It’s the vast food chain that feeds off federal spending where the impact is likely to be much greater. I have watched a friend struggle in this climate and my heart goes out to her. It means periods of unemployment, stringing together temporary jobs, working out of town in temporary housing and in general dealing with a lot of stress and anxiety. She is one of many in this situation and with the new pointless austerity trend is for more of it, because of a law posits that austerity is a good idea. For her it means no health insurance and wondering how you are going to pay the mortgage.

But at least she is partially employed, and may get a full time job again one of these days that pays actual benefits. She has some employment. Many other federal contractors are simply unemployed and trying to figure out what to do about it. The bottom line is when you have less money you have less of it to spend. Austerity breeds more austerity. Austerity does not trickle down, it cascades down. None of this should be the least surprising. Any economist could have predicted this. We can now expect modest job growth at best and a cooling economy, which was barely warm, for the remainder of the year, assuming we do not progress into a recession.

To quote Pogo, “We have met the enemy, and he is us.” We are choosing austerity and we are choosing to punish ourselves because we can. And that’s what the big squeeze is all about in a nutshell: some small minority of politicians from heavily gerrymandered districts is making it so because they control a slim majority in the U.S. House of Representatives.

In Europe the same economies practicing the austerity are at least as badly off as they were before they were told to be austere. In Greece and Spain, for example, the unemployment rate exceeds 25%. The real cost of planned austerity though is not money but the trail of wounds and wreckage that it causes. It’s in the excess student indebtedness because states won’t subsidize tuitions as much. It’s in young adults who, if they are lucky, can still live at home and try to fend off feelings of hopelessness as they search for good jobs that largely aren’t there. It’s in lives put on hold, if you are lucky, or watching the quality of your life diminish. It’s in putting off fixes to your car for another month, even though the engine needs to be fixed. Austerity multiplies fiscal and personal pain.

It amounts to a game of musical chairs except two chairs are being pulled with each round. In reality though it’s those who are in recession-proof jobs and who have sizable bank accounts that end up back in their chairs. Pain is distributed disproportionately to those not quite so fortunate or quite so prepared.

The multiplying effect is really the uncertainty. No one is quite sure how the sequestration will affect the economy, so they are hunkering down instead. They are not making investments, not hiring people and deferring spending just in case things go from bad to worse. You know you have a problem when Wal-mart is struggling with profitability. Between payroll tax increases, declining wages and poor job growth there is simply less for the least well off to spend, and Wal-mart, which is basically the retailer to the working class, thus has a hard time making profits. So they squeeze their employees some more, resulting in fewer employees, long checkout lines and empty shelves.

About all you can do is in good times to prepare for the bad times. The 401-K has proven a failure as a retirement system, but it is still a source of funds that in good times that I can put money too, and which can’t be taken away in the next round of austerity. And so I have been throwing as much money as I can into it, which includes now that I am over fifty special catch up contributions. The 16.3% of my income going into my 401-K means something else has got to give and that is our savings account, which needs a lot more money. Our daughter is on the cusp of a college graduation and it comes just in time. We really can’t afford to keep her in college much longer. The $1300 or so we pay for her room and board each month has to fatten our savings account instead. And like many Americans, I look for other sources of income: teaching and consulting. The latter has been reasonably good to me lately, even if it keeps me from blogging as often as I would like.

Like it or not we are all in the economy together. Our cheese is being moved and unless we have been hoarding cheese many of us are about to get caught in another pointless austerity experience. What it really will amount to will be more wealth moving toward the wealthy and our pockets will be picked clean.